Producers limit supplies in hope of increasing prices
"In late May, coffee producers agreed to limit supplies in an effort to increase world prices, which have been at the lowest level in the past seven years. The current average coffee price is about 68 cents a pound. According to the plan, producers would hold back 20% of their exports until the price index reaches 95 cents.
The plan is backed by the main members of the Association of Coffee Producing Countries, including Brazil and Columbia. This fact has led analysts to believe the plan has some credibility. In fact, future prices rose on reports that an agreement had been reached.
Consumers, however, seem more skeptical. "In the short term, it may lead to a price rally, but in the long run there is no alternative to market forces," said B. Hubert of Kraft Jacobs Suchard, one of Europe's largest coffee importers.
In Brazil, reactions to the agreement were mixed. While small producers seemed happy with the idea of a price increase, large producers were concerned with the need to reduce exports."
Source: Financial Times, May 20/21, 2000